FOREX Market vs Futures Market

Both the Forex and futures markets can provide investors with a way to diversify their portfolio away from the stock market. Although both of these markets are similar, there are several differences between them. One of the biggest differences between these two markets is the size. 

Size of the Market

The Forex market is much larger than the futures market. Every day that the market is open, the Forex market exchanges about $2 trillion. In comparison, the futures market trades approximately $30 billion per day. This means that the Forex market is much larger. The Forex market provides traders with the opportunity to have their orders processed quickly. The large volume in the market also makes the Forex market less susceptible to volatility. While it is still considered to be a volatile market, it is not as volatile as the futures market.


Another difference between the Forex market and the futures market are the commissions. When you trade in the futures market, you will have to pay a commission to your brokerage every time a trade is placed. In comparison, when you trade in the Forex market, you will not have to pay any commissions. Forex brokers are compensated with the difference between the bid and ask prices. 

Limited Risk

With the Forex market, you are generally limiting your risk to the amount of money that is in your account. When the market begins to go in a different direction, the broker will start to close out your investments in order to fulfill their margin requirement. This means that in most cases, you will not have to worry about paying additional money on top of what you have lost from the trade. With a futures market, this may not be the case. They could potentially close out the trade after you have went into a negative balance. You would then have to come up with the additional money to compensate the broker. This money is added to the amount of your loss.

24 Hour Market

Another key difference between these two markets is the amount of time that they are open. The Forex market is open 24 hours a day, five days a week. The futures market opens when the stock market opens and closes overnight. While there are some opportunities to trade futures after the stock market is closed, they are very thinly traded. Because there is so little activity overnight, futures are extremely volatile for overnight trades. With the Forex market, you always have a market that is open somewhere around the world. This means that you have plenty of traders to work with and the market is not as volatile.

Instant Execution

The Forex market, you will generally be able to process an order instantly. The futures market requires you to wait a while before your order is filled. This lag time means that you may not know what price your order will be once it is filled and can cause a tremendous amount of uncertainty. 

blog comments powered by Disqus